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In The Vancouver Sun on Saturday, I argued that B.C.’s carbon tax has been ineffective. Further, I implied that this ineffective tax measure is a distraction, causing potentially dangerous delay in any consideration of policies that might have any real impact on B.C.’s greenhouse gas (“GHGs”) emissions.

The danger to which I referred is not limited to the significant risk of ocean acidification and other ecosystem damage that is reasonably associated with increasing the amount of carbon we pump into the earth’s atmosphere. There is more to this story.

In an accelerating international carbon pricing war, exporters have everything to lose and importers are the big winners.

That is the primary reason the B.C. government must lead in the development of GHG reduction strategies that do not involve direct or indirect (cap and trade) tax measures.

Under world trade rules, a nation that domestically applies GHG taxes and or limits to domestic production has the right to apply new tariffs to imports from jurisdictions that have not implemented similar measures. Also, our trading partners may have the right to penalize our exports if we fail to keep our own locally legislated commitments to reduce our GHGs, even if they have made no reduction commitment of their own. (The idea is that when they enter into a trading relationship with us, our trading partners have the right to expect us to keep our own laws, even if their laws appear less stringent.)

Japan introduced its first significant carbon dioxide (CO2) tariffs on all petroleum, coal (both steelmaking and to make electricity) and liquid natural gas (LNG) imports in April 2011. This CO2 tariff increases on Oct. 1 every year, and already equates to roughly $15 per tonne of steelmaking coal that B.C. exports. Japan’s CO2 tariff has already redirected to the Treasury of Japan, some 20 per cent of the sales margin that B.C. coal producers previously used to meet payroll and pay taxes in B.C.

B.C.’s revenues from future LNG exports will also be significantly reduced due to this existing tariff. South Korea is planning to introduce a similar set of new CO2 tariffs by 2015, and China is talking about a possible 2020 implementation date.

California implemented that state’s first non-tariff or indirect CO2 tax — a “cap and trade”-type regulation—last January. Since then, the indirect California tax has eaten up some $6 of the roughly $40-per megawatt-hour price BC Hydro has been paid for electricity exported to that state. That $6/MWh, all of which was used to reduce B.C. consumers’ electricity rates in the past, is now being used to directly subsidize electricity rates in California. Meanwhile, back home, B.C. industry pays the carbon tax if we co-generate electricity using B.C. natural gas. But B.C.’s carbon tax does not apply to imports of coal-fired electricity from the U.S. So our current system discriminates against cleaner made-in-B.C. power, in favour of much more GHG-intensive imported U.S. coal-fired power.

California’s CO2 law penalizes finished petroleum products that are imported from Cherry Point, Wash., and made from B.C. conventional sweet crude oil, while the state’s allocation of free CO2 quota to in-state oil wells and refineries gives products that are made in California refineries from California heavy crude a free ride. That is even though California’s heavy crude is even more GHG-intensive than feedstock from Alberta’s oilsands.

Under existing law, in 2015 California’s biased CO2 tax regime expands to cover natural gas, aluminum, wood products, pulp and paper, fertilizers and other products. In all sectors, in-state producers of the GHG-intensive goods receive free California CO2 quota, while those of us who export those products have to buy quota covering 100 per cent of our product life cycle GHGs at market prices to maintain our share of the California markets. This highly trade-protectionist California “cap and trade”-type carbon pricing regime is the model on which the Obama administration is basing the design of new U.S. federal GHG regulations.

Today, some 40 per cent of the main components in cement that are used in B.C. are imported from across the Pacific. This is at least in part because B.C. cement producers have to pay carbon taxes, but B.C.’s carbon tax does not apply to the imports.

Our trading partners have not and will never agree to reduce the CO2 tariffs applied to our exports to reflect the fact that their suppliers pay some CO2 tax here, in Canada. The only way to reduce our CO2 tariff exposure is to reduce GHGs here at home.

Aldyen Donnelly is president of WDA Consulting Inc.

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Opinion: Real cuts needed to our greenhouse gas emissions

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